Home Equity or RRSP for equalization?

[hubby]

One Mediator said that during his 'rough' equalization payments figures that It may be better to reduce the amount of equity I pull from the house to keep the difference in our RRSP's between my spouse and I intact ... because of tax implications and all I guess?

Question is this. If I had to give $20000 to equalize things ... coming out of the house equity this is easy ... you just subtract and be done with it.

However, the value of RRSP is different ... to get the NET amount of 20000 might require giving 25000 GROSS to get to the NET value after taxes have been taken into account? At least this is how I understand it?

So, is the mediator right in that it is better to give equalization payments from home equity as opposed to RRSP? Any tax advantages to the spouse making the payments if they are derived from RRSP pot?

Hubby

[logicalvelocity]

hubby,

When rsp's are collapsed in the year, the proceeds are treated as income. I think the mediator is only suggesting to use equity in the home to avoid tax implications.

It is always good to keep RSP's. this is considered a liquefied asset and can be used to secure a loan mortgage etc.

Home equity would be treated as tax free income. It actually isn't a bad idea as mortgage rates are relatively low. Sometimes depending on the bank, they have total equity mortgages where you can retain your current mortgage and secure a line of credit at prime against the remaining equity in the home. I know Scotiabank has this option.

[hubby]

Thanks for the confirmation

Logicalvelocity,

Thanks for confirming this ... it makes sense to take this course of action.

Hubby